Tag Archives: Day Trading

The world of investments can be quite perilous and it constantly demands the investors to be smart and sensible about their decisions. It is, hence, prudent to keep a close eye on the movements and trend of the market and use them to make better informed decisions and avoiding sticky situations. Technical analysis can be immensely useful, in this regards, as it helps you to statistically analyze the price movement of an asset.

Technical Analysis

Technical analysis may seem quite complicated for a new trader but it basically is the study of recurring patterns that results from changes in supply and demand. Asset prices will move up when demand is stronger than supply since buyers will be willing to buy more than what the sellers are looking to sell. Hence, in order to entice the suppliers, the buyers will offer a higher price resulting in the overall price to increase. The same is true for the other direction as well when supply is more than demand. The overall price will fall as sellers will be forced to lower the price to sell. These imbalances in supply and demand also give rise to support and resistance levels, which act as barriers to price movement.

Support and Resistance

Support and resistance level are points that the price of an asset struggle to move beyond. At the support level, there will be an influx of buyers as they will deem that price point as quite attractive. This will lead to the support level to act as a price floor since they restrict the asset’s price to fall below that point. On the other hand, at the resistance level, there will be a lot of sellers willing to sell and hence, restricting the asset’s price to move beyond that point. The resistance point, therefore, acts the price ceiling.

The knowledge of the concept of support and resistance level can bolster your investment strategy and aid you immensely in effectively planning your trade.

Buy and Sell Timing

You can vastly improve the quality of your trades by using support and resistance level. Usually, a good time to buy an asset is when it is near the support point. Similarly, if you want to sell, you should wait for the asset to reach near the resistance level before doing so.

However, if you are in a situation that is not so clear cut, you can analyze the price action near support and resistance levels to get a better idea of the movement and use that action to augment your trading strategy.

Determining the Trend

The most important application of the principle of support and resistance levels is that that it will help you understand the overall trend. An asset will not oscillate between support and resistance levels. If the overall trend of the market is bullish, the stock will break its resistance point.

Once an asset is able to break a resistance point, that point becomes a support point in an upward trend. Furthermore, the support levels will hold out in an upward trend where as resistance levels will keep on breaking. In a down trend, the opposite is true.

Stop loss to mitigate risk

Thirdly, you should use a stop loss order to manage your risk. This should be done around the support level so that you are not caught out when the asset price takes a downward spiral.

The knowledge of support and resistance can truly augment your day trading strategy and improve your overall, trade quality.

Day trading refers to the practice of buying and selling financial instruments such as stocks, bonds, currencies, futures, options, and commodities, during the day with the aim of making profit from the volatility on the market. Day traders may deal with thousands of shares in a single day, often with leverage, and seek small-percentage profits from their trades. A trader takes a specific position depending on their analysis of a stock’s probable price direction within the trading period.

In order to succeed in day trading, you are expected to be knowledgeable, disciplined, and patient to wait for the right trade.

There is a difference between day traders and investors in that day traders hold their securities for only one day. Day traders close out their positions at the end of the day and then start over again the next day. Conversely, swing traders hold their securities for a couple of days, sometimes it can be even months, while investors may hold their securities for several years.
Originally, day trading was done by financial companies only as they had access to the exchanges and market data. But with the swift advancement of technology, today individual traders can directly access to the same exchanges and market data, and can make the same trades at very low cost.

What are some of the benefits of day trading?

The major advantage of day trading is the potential to earn huge profits. There are many other benefits you can reap from day trading if you can effectively manage your emotions and cope with the inherent pressures.

Be your own boss

A day trader is simply self-employed, working by themselves and answerable to no one. Being professional day trader means you are a true entrepreneur living by your wits to reap the benefits of your own decisions.

Expensive education is not a requirement in day trading

Unlike jobs in the corporate market, day trading doesn’t require an expensive education. Basically, there are no formal educational requirements for becoming a day trader.
Another good thing about day trading is that you can do it from anywhere provided you have access to a computer and a reliable internet connection.

Day trading requirements

Knowledge

Knowledge and experience in the marketplace is essential for one to succeed in the stock market. The latest stock market news and events that affect stocks will help you reap huge profits. Attempting to day trade without an understanding of the market fundamentals is a ticket to losing your money.

Sufficient Capital

A substantial amount of capital is required to capitalize effectively on intra-day price movements.

Infrastructure

A modern day trader must rely on a combination of computers, routers, internet connection, and specialized software in order to keep track of the market all day round. Besides, an active day trader needs to use an electronic communication network to avoid paying a commission to a broker for each trade.

Discipline

A profitable strategy may not yield good results if you are not disciplined. Many traders end up losing their hard earned money because they fail to stick to their trading plan. Therefore, you need to develop a set of strict rules that take the emotion out of a trade.

Day trading is very prevalent especially in this digital era. Day trading, both institutional and individual, play a vital role in the marketplace by keeping the markets efficient and liquid. Day trading takes time to master. With proper techniques and guidelines, one can make huge profit from day trading.